U.S. State Department Geographic Bureaus: Europe and Canada Bureau

U.S. DEPARTMENT OF STATE
95/06/07 Fact Sheet: U.S.-Russian Economic Relations/Military Issues
PUBLISHED BY THE BUREAU OF PUBLIC AFFAIRS

Fact Sheet
U.S. Russian Economic Relations and Military Issues

U.S.The United States actively supports Russian efforts to develop democratic institutions and a free market economy. At summit meetings in Vancouver, Moscow, and Washington, Presidents Clinton and Yeltsin reaffirmed the fundamental importance of U.S.-Russian cooperation and agreed on a variety of bilateral initiatives to expand economic relations between the two countries and promote democratic and market reforms in Russia.

U.S. assistance to Russia funds a variety of programs in the following key areas: private sector development, privatization and enterprise restructuring, trade and investment, democracy initiatives, energy, health care, housing, and environment. Humanitarian assistance represented a major portion of U.S. aid during the initial transition phase in Russia when there was a pressing need for food, medicine, and other essential commodities. The U.S. has now entered a second phase of aid concentrating on technical assistance and direct support for trade and investment.

Congress has appropriated substantial resources to support U.S. assistance to Russia and the other New Independent States (NIS). In September 1993, Congress approved a special one-time assistance package of $2.45 billion aimed at helping all the NIS during the difficult period immediately following the fall of communism and the breakup of the Soviet Union. Approximately $1.6 billion of that amount was allocated for programs in Russia. In August 1994, Congress passed a $850 million legislative package for assistance to the NIS in FY 1995, of which $379 million is targeted for Russia. Assistance activities in FY 1995 support ongoing programs to strengthen democratic practices and promote the development of private enterprise and market institutions. There will be a new emphasis in the 1995 program on direct support for U.S.-Russian trade and investment, which has been growing with the successful implementation of market reforms. The 1995 program includes new activities to expand cooperation on strengthening the rule of law and fighting the rise in crime.

U.S. obligations under all assistance programs total $3.3 billion, of which more than $2.2 billion has been expended. The financing of investment and non-food exports under U.S. commercial programs in Russia exceeds $2.3 billion.

Bilateral Economic Issues

Gore-Chernomyrdin Commission. Under the leadership of Vice President Gore and Prime Minister Chernomyrdin, the U.S. and Russia are working to advance bilateral cooperation through seven working committees known collectively as the Gore-Chernomyrdin Commission. The committees address issues in the fields of science and technology, business development, space, energy policy, environmental protection, health, and defense diversification. The Commission last met in Moscow in December 1994 and will again in summer 1995. Plans were made at the most recent meeting in Moscow to establish a new committee on agriculture.

Trade and Investment. At the September 1994 summit in Washington, DC, Presidents Clinton and Yeltsin agreed to place new emphasis on expanding trade and investment. They signed a joint statement on a "Partnership for Economic Cooperation," which will serve as a framework for reducing barriers to expanded economic cooperation. President Clinton also announced that $100 million in FY 1995 assistance to the NIS would be used to provide direct support for trade and investment through the Overseas Private Investment Corporation (OPIC), the Trade and Development Agency (TDA), and the Commerce Department.

U.S.-Russia bilateral trade was about $5.8 billion in 1994. The U.S.- Russia Business Development Committee (BDC) was established June 1992 in Lisbon and is now co-chaired by U.S. Commerce Secretary Ron Brown and Russian Deputy Prime Minister and Minister of Foreign Economic Relations Oleg Davydov. The BDC helps remove impediments to trade and investment. The 1992 U.S.-Russia trade agreement provides mutual most-favored-nation status and offers strong intellectual property rights protection. In 1992, the two countries also signed:

-- The Treaty for the Avoidance of Double Taxation (entered into force January 1994), which provides relief from double taxation, assurance of non-discriminatory tax treatment, cooperative efforts between officials to resolve potential problems, and the exchange of information between tax authorities to improve compliance with tax laws.

-- The Bilateral Investment Treaty, which when ratified by the Russian Parliament will guarantee the right to the repatriation of ruble profits in hard currency, non-discriminatory treatment for U.S. investments, effective compensation in case of expropriation, and international arbitration in the event of a dispute between a U.S. investor and the Russian Government.

In October 1993, Russia received generalized system of preferences (GSP) status. More than $440 million worth of Russian goods will benefit. The U.S. also supports Russia's application to become a member of the World Trade Organization.

U.S. Export-Import Bank (Eximbank). Eximbank approved about $2 billion in loans, loan guarantees, and insurance for transactions in Russia from 1991 to March 1995. Of this total, more than $1 billion was approved under its Oil and Gas Framework Agreement. The agreement can support as much as $2 billion in capital equipment exports for the rehabilitation of Russia's energy sector.

Overseas Private Investment Corporation (OPIC). OPIC also is active in Russia in supporting U.S.-Russian joint ventures. As of 1994, OPIC approved $792 million in investment financing and over $1.4 billion in insurance for more than 40 projects. The total investment value of these projects is more than $2.2 billion. OPIC has reserved $500 million in finance and insurance assistance for Russian and other NIS defense conversion efforts.

Trade and Development Agency (TDA). TDA has approved more than $45 million in funding for feasibility studies on 114 investment projects.

Department of Commerce. The Commerce Department has opened American Business Centers in St. Petersburg, Nizhnevartovsk, Novosi-birisk, Yekaterinburg, Khaborovsk, Vladivostok, Volgograd, Nizhny Novgorod, and Chelyabinsk to help U.S. and Russian companies do business. One additional center in Yuzhno-Sakhalinsk is planned to open in summer 1995. The Commerce Department also established a Special American Business Internship Program (SABIT) in Russia.

Agricultural Credit. For 1995, the U.S. has authorized $20 million in export credit guarantees in connection with sales of U.S. agricultural commodities to private sector buyers in Russia under the Commodity Credit Corporation's Export Credit Guarantee Program (GSM-102).

Assistance To Support Transition to a Market Economy

Privatization. The U.S. Government has been in the forefront of delivering privatization assistance to Russia since October 1992. The U.S. Agency for International Development's (USAID) privatization assistance program has focused on helping Russia to privatize state- owned enterprises and to develop capital markets. With USAID's help, Russia successfully completed the privatization of 80,000 small businesses and 14,000 medium and large enterprises representing 70% of the nation's industry. USAID is supporting work on developing a complementary market infrastructure, to include new commercial laws and regulations, a viable stock exchange, regulatory agencies, and business support organizations--all of which help safeguard the commercial viability of privatized enterprises. The goal is to create a business environment which is transparent, fair, and predictable and which encourages foreign and domestic investment.

Enterprise Funds. On September 28, 1993, USAID signed a grant agreement to initiate the Russian-American Enterprise Fund. The U.S. plans to capitalize the fund with $340 million in foreign assistance appropriations. Managed by a private board of directors, the fund has authority to make loans and equity investments and offer technical assistance to promote new private businesses in Russia, with special emphasis on the promotion of small and medium-sized enterprises. It uses U.S. Government capitalization to attract other resources for private-sector development in Russia. USAID has also committed $100 million to establish the Fund for Large Enterprises in Russia, which is aimed at helping newly privatized state enterprises to restructure along market lines.

Peace Corps volunteers are working in Russia to promote small enterprise development.

Technical Assistance and Training. Technical assistance and training programs have been provided in the following areas: small business development and management; securities market and exchange operations and regulations; banking; auditing; finance; budget management; tax policy; revenue forecasting; agricultural and agribusiness development; food systems restructuring; energy management, pricing, regulation, and efficiency; highway rehabilitation and maintenance; telecommunications development; nuclear reactor safety; coal mine safety; petroleum trade; defense conversion; land titling; land use planning; review of draft housing policy law; housing development, reform, management, and finance; and health care.

Under the Emerging Democracies Program of the U.S. Department of Agriculture (USDA), technical assistance activities include a commodity exchange and grain marketing program, a market news and information system project, a farm privatization pilot project, and short-term internships under the Cochran Fellowship Program. A U.S.-Russia Joint Commission for Agribusiness and Rural Development was established in March 1994. The commission channels funds generated by the sale of donated U.S. commodities to support private and social initiatives in rural communities throughout Russia.

Other Reform Efforts. U.S. funding for the Eurasia Foundation--a private, non-profit, grant-making organization--supports economic and democratic reform in Russia. Since its inception in the spring of 1993, the Eurasia Foundation has disbursed more than $14 million in the form of small grants (average size is $45,000) to U.S. and indigenous organizations to promote unique and valuable reform-oriented programs in Russia and the other NIS.

Trade and Investment. The U.S. provides direct support for the expansion of bilateral trade and investment by funding programs in Russia of the Eximbank, OPIC, TDA, and Commerce Department (see "Bilateral Economic Issues" above).

Health Care. USAID is providing assistance to Russia in health care financing and service delivery reform, pharmaceutical security, women's health initiative, and health surveillance and monitoring. USAID also is providing support to nine medical partnerships that have been established between U.S. institutions and Russian institutions in Moscow, Dubna, Murmansk, St. Petersburg, Vladivostok, and Stavropol.

Assistance To Support Transition to Democracy

Political Processes. To support free and fair elections, the U.S. provided technical assistance and training to political parties in preparation for the December 1993 parliamentary elections, assistance on election law analysis and encouragement of voter participation through media activities and public dialogue, and training of Russian monitoring teams. The U.S. also has worked with the Russian Central Election Commission and provided support for electoral administrations.

Rule of Law. USAID's rule of law program for Russia was launched in 1992 and significantly expanded by Presidents Clinton and Yeltsin at the 1993 Vancouver summit. Technical assistance and training programs on the rule of law have included legislative drafting; judicial restructuring, including jury trials; criminal law reform; U.S. legal and judicial systems; federal, state, and local court systems; an adversarial court system; judicial exchanges; labor relations; conflict resolution; legislative drafting; constitutional reform and the draft Russian constitution; food and drug legislation; and law-making for democracy.

At the 1994 Washington, DC, summit, the U.S. announced a $30- million package of assistance for Russia in 1995 to support a new legal infrastructure, including $12 million of assistance for law enforcement activities. This program will be implemented by various U.S. agencies, including the Departments of Justice and Treasury. The two nations also pledged to complete an Agreement on Cooperation in Criminal Matters, which provides for cooperation in criminal investigations and crime prevention.

Public Administration. Programs in public administration support local self-government, parliamentary exchanges, promotion of civilian involvement in military affairs, municipal management and finance, municipal education, business involvement in city government, and fiscal management.

Media. Media training topics have included independent press and broad- cast media, publishing, editing, marketing, advertising, legal aspects of advertising, legal aspects of publishing, station management, communications, and copyright legislation. The U.S. Information Agency has signed Worldnet rebroadcast agreements with more than 50 national, local, and independent television stations throughout Russia.

Education. U.S. technical assistance to teachers and national and regional administrators includes seminars and consultations in education, civics, American studies, long-distance learning methods, new methodologies in the instruction process, strategies for adding social sciences and humanities to the curriculum of Russian technical colleges, the development of a management training curriculum in manufacturing and industry, higher education reform, and community colleges. U.S. educators also teach English at universities and higher schools of learning. Books and articles on free-market economics and democracy have been translated and distributed. More than 20,000 Russians have participated in U.S.-sponsored educational exchanges and training programs targeting students, teachers, entrepreneurs, and other professionals.

Humanitarian and Food Assistance

Most of the U.S. Government's humanitarian assistance effort in Russia has been completed. The following were key initiatives.

Operation Provide Hope. This January 1992 initiative delivered Department of Defense (DoD) excess food, medicines, and medical supplies to Russia and other destinations.

Food Assistance. Separate from the food deliveries made under Operation Provide Hope, USDA programs have supported a total of $1.2 billion in food assistance to Russia since 1992.

Special Initiatives. Under separate programs, the U.S. Government purchased more than $75 million worth of commodities which were distributed by nine U.S. private voluntary organizations to further their charitable work with vulnerable populations, especially women and children. In 1993, DoD completed the upgrading of eight hospitals in Moscow with equipment and supplies valued at $37 million and transported 22,696 metric tons of humanitarian items valued at $91 million. Also hospital equipment and supplies from a decommissioned U.S. military hospital, valued at $6 million, will be donated to a hospital in Vladivostok.

Private U.S. Donations. The U.S. also has facilitated donations by the private sector. Under the February 1991 Medical Assistance Initiative, the non-profit organization Project HOPE was authorized to provide medicines and medical supplies within the New Independent States. Since its initiation, Project HOPE has shipped more than $50 million worth of medical items to more than 50 locations in Russia.

Military Issues

Agreements/Cooperation. U.S. and Russian security cooperation emphasizes strategic stability, nuclear safety, dismantlement of nuclear weapons, prevention of the proliferation of weapons of mass destruction and their delivery systems, and enhanced military-to-military contacts. At the Lisbon summit in 1992, the United States signed a protocol to the START I Treaty with Russia, Belarus, Kazakhstan, and Ukraine--where the strategic nuclear weapons of the former Soviet Union were located-- making the four countries party to the treaty and committing all signatories to reductions in strategic nuclear weapons within the seven- year period provided for by the treaty. The treaty entered into force December 5, 1994.

On January 3, 1993, the U.S. and Russia signed the Treaty between the United States of America and the Russian Federation on Further Reduction and Limitation of Strategic Offensive Arms (START II). This treaty reduces overall deployments of strategic nuclear weapons on each side by more than two-thirds from current levels and will eliminate the most destabilizing strategic weapons--heavy intercontinental ballistic missiles (ICBMs) and all other deployed multiple-warhead ICBMs. At the September 1994 summit, the two nations agreed to immediately begin removing nuclear warheads due to be scrapped under START II--instead of taking the nine years allowed--once START I takes effect and the START II Treaty is ratified by both countries. At the May 1995 summit, Presidents Clinton and Yeltsin agreed on a set of principles that would guide further discussions in the field of demarcation between ABM systems and theater missile defense systems. They also agreed on steps to increase the transparency and irreversibility of nuclear arms reduction. In addition, each committed to not using newly produced fissile materials for nuclear weapons, nor to so use fissile material from nuclear weapons being eliminated and excess to national security requirements.

Following ratification by Russia and the other NIS, the Conventional Armed Forces in Europe Treaty entered into force on November 9, 1992. This treaty establishes comprehensive limits on key categories of military equipment--tanks, artillery, armored combat vehicles, combat aircraft, and combat helicopters--and provides for the destruction of weaponry in excess of these limits.

On September 8, 1993, the U.S. and Russia signed a memorandum of understanding on defense cooperation that institutionalized and expanded relations between defense ministries, including a broad range of military-to-military contacts and joint training for peace-keeping. The U.S. and Russia carried out a joint peace-keeping training exercise in Totskoye, Russia, in September 1994. Based on the January 14, 1994, agreement between Presidents Clinton and Yeltsin, the two nations stopped targeting their strategic nuclear missiles at the other as of May 30, 1994.

Nunn-Lugar Act. This type of assistance is provided to Russia, Ukraine, Kazakhstan, and Belarus to dismantle weapons of mass destruction and prevent proliferation of such weapons. Overall, the U.S. has agreed to provide more than $500 million in Nunn-Lugar assistance to Russia, $350 million to Ukraine, nearly $100 million to Kazakhstan, and more than $80 million to Belarus--for a total FSU-wide of more than $1 billion in aid. This assistance is used to dismantle missiles, their associated silos, bombers, and ballistic missile submarines as well as to protect nuclear material from smugglers. A modest amount of assistance also is used to convert factories which previously made weapons of mass destruction to civilian production.

Science and Technology Center. On March 3, 1994, the International Science and Technology Center opened in Moscow through the efforts of the founding parties--the U.S., the European Union, Japan, and Russia. With Nunn-Lugar funding, the U.S. provided an initial $25 million for the center, which is designed to prevent the proliferation of technology and expertise related to weapons of mass destruction by providing peaceful employment opportunities to scientists and engineers formerly involved with such weapons and their delivery systems. Plans are underway for an additional $10 million contribution. To date, the center has employed more than 8,000 Russian scientists and engineers on civilian projects.

Officer Housing Resettlement. In response to appeals from the Russian and Baltic Governments, the U.S. announced at the April 1993 Vancouver Summit the Russian Officer Housing Resettlement Program, to ease the burden of withdrawing Russian military forces from the Baltic nations. A pilot project for construction of 450 housing units for demobilizing officers was begun in the summer of 1993. At the G-7 summit in Tokyo in July 1993, the President announced an additional 5,000 housing units for demobilized and retired Russian officers from the Baltics and elsewhere. Distribution of vouchers and assignment of housing began in August 1994 and continues in 1995. The Housing Resettlement Program played a key role in helping the Russian and Baltic Governments reach agreement on the withdrawal of Russian military forces by August 31, 1994.

Multilateral Economic Cooperation

Since 1990, the international community has mobilized economic assistance for Russia and the other NIS on a scale unmatched since the Marshall Plan for the reconstruction of Europe at the end of World War II. In 1993, the U.S. and other bilateral creditors rescheduled about $15 billion of Russia's debt service payments. Paris Club Creditors agreed to a one-year rescheduling of $7.1 billion of debt service in 1994.

The Group of Seven industrialized nations also has provided more than $12 billion in bilateral financing. Since then, Russia also has received $4 billion from the International Monetary Fund under the Systemic Transformation Facility. In March 1995, Russia and the IMF reached agreement on a standby program that could lead to more than $6 billion in loans.

The World Bank has approved more than $3 billion in lending to Russia, mainly to support sectoral reform and reconstruction (e.g., $1 billion for oil well rehabilitation). The World Bank's International Finance Corporation, which lends to private sector entities, has committed $115 million to projects in Russia.

The European Bank for Reconstruction and Development, which began operating in 1991 to assist former communist countries, has committed $980 million in loans to Russia.

On June 8, 1994, Russia signed an agreement with the Organization for Economic Cooperation and Development to provide policy guidance and technical assistance on a wide range of structural reform issues, such as competition law and policy.

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